An Audit Report on

John Keel, CPA
State Auditor

Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services

March 25, 2015
Members of the Legislative Audit Committee:
The Health and Human Services Commission (Commission) did not
ensure that its decision to tentatively award a contract to GEO Care,
LLC to manage selected operations at Terrell State Hospital provided
the best value to the State. The Commission and the Department of
State Health Services (Department) did not fully comply with the
Commission’s contract planning and procurement processes, which
are designed to assist with ensuring that contracts are awarded to
qualified vendors that offer best value in accordance with applicable
state procurement laws and rules.
The Commission and the Department complied with certain contract
planning and procurement requirements, such as providing the
solicitation to the State’s Contract Advisory Team for its review,
publicly posting the solicitation, screening vendor proposals for
completeness, and evaluating the only vendor proposal that it
determined was complete. However, auditors identified significant
deficiencies in the Commission’s planning and proposal evaluation
processes.
The Commission and the Department did not perform planning
to identify the business services to outsource and the associated
costs.
The Commission’s executive commissioner directed the
Commission’s deputy executive commissioner for procurement and
contracting services to initiate a solicitation for outsourcing Terrell
State Hospital operations. However, when the solicitation was
initiated, the Commission and the Department did not comply with
the Commission’s policy to conduct a needs assessment and costbenefit analysis to support outsourcing those operations. Needs
assessments and cost-benefit analyses are critical in (1) defining the
scope of work for a solicitation and (2) evaluating vendor proposals.

Background Information on
Terrell State Hospital
Terrell State Hospital is a 288-bed
psychiatric inpatient hospital operated
under the direction of the Department of
State Health Services.
As of January 2015, Terrell State Hospital
had approximately 980 employment
positions (88 of which were vacant) to serve
approximately 240 patients in the following
programs:
•
•
•
•
•
•

Adult acute program.
Children and adolescent services.
Forensics program.
Geriatric services.
Intensive behavioral program.
Basic medical services (for example,
health assessments, screenings, and
physicals).

Terrell State Hospital’s operating budget
was approximately $59.8 million for fiscal
year 2015.
Terrell State Hospital is accredited by The
Joint Commission, a not-for-profit
organization that sets standards for and
evaluates a health care organization's level
of performance in areas such as patient
rights, patient treatment, infection control,
and the organization’s ability to provide
safe, high-quality care. To earn and
maintain accreditation, an organization
must undergo an onsite survey by the Joint
Commission at least every three years.
Terrell State Hospital was last accredited in
2013.
In 2012, Terrell State Hospital was one of six
state hospitals considered for privatization
through a privatization effort directed by
Rider 63, page II-73, the General
Appropriations Act (82nd Legislature).
However, no vendors submitted proposals to
operate Terrell State Hospital.
Source: Department of State Health
Services.

SAO Report No. 15-030
Robert E. Johnson Building
1501 North Congress Avenue
Austin, Texas 78701

P.O. Box 12067
Austin, Texas 78711 -20 67

Phone: (512) 936 -950 0
Fax: (512) 93 6 -9400
Internet: www.sao.state.tx.u s

Members of the Legislative Audit Committee
March 25, 2015
Page 2
The Commission's $30.0 million estimated contract value was not reasonable.
The draft solicitation that the Commission submitted to the State’s Contract Advisory Team for its review
specified an estimated total contract value of $30.0 million. However, neither the Commission nor the
Department had documentation to support that amount. In addition, auditors determined that the $30.0
million cost estimate was unreasonable when compared to the following:


The Department reported that the annual operating budget for Terrell State Hospital was approximately
$55.7 million for fiscal year 2014 and $59.8 million for fiscal year 2015.



The solicitation was for a five-year contract term with up to five additional two-year renewal periods.
That suggests that the contract term could have been as long as 15 years.

The Commission may not have complied with Texas Government Code, Section 531.018, which
requires the Office of the Attorney General to review certain health and human services agency
procurements.
Texas Government Code, Section 531.018, specifies that, before a health and human services agency enters
into a contract of $250 million or more for “goods or services in connection with the provision of medical or
health care services, coverage, or benefits,” it must notify the Office of the Attorney General during the
initial planning process. The Office of the Attorney General must be given an opportunity to review the
procurement process and the contract and to make recommendations. However, because its cost estimate
was $30.0 million, the Commission did not provide information about the solicitation to the Office of the
Attorney General. As discussed above, however, the $30.0 million cost estimate was not reasonable.
In addition, when considering Terrell State Hospital’s annual operating budgets for fiscal years 2014 and
2015 and a five-year initial contract term, the estimated value for the contract could exceed $250 million.
The Commission did not consider price to be a factor in determining whether a vendor’s proposal
provided the State with the best value.
Title 1, Texas Administrative Code, Section 391.131(b), specifies that every procurement for goods or
services must include consideration of price as a best value factor unless the purchasing entity (1)
documents the reasons for disregarding price and (2) for a procurement that is estimated to exceed $100,000
in value, obtains the approval of the Commission. However, the Commission’s Procurement and
Contracting Services unit reported that it erroneously removed price as a best value factor. It asserted that
occurred because it created the solicitation from a prior solicitation (used for a 2012 effort to privatize state
hospitals) that required a vendor to achieve a 10 percent cost savings, which the Commission’s executive
commissioner did not want to require in the new solicitation. As a result, when the Procurement and
Contracting Services unit removed the 10 percent cost-savings requirement, it also removed price as a best
value factor.
The Procurement and Contracting Services unit started drafting the solicitation in March 2014;
however, the Department did not submit an approved purchase requisition for the solicitation until
June 2014.
The Commission’s procurement policies and procedures require the submission of an approved purchase
requisition, along with other documents related to a needs assessment and cost-benefit analysis, to the

Members of the Legislative Audit Committee
March 25, 2015
Page 3
Procurement and Contracting Services unit to initiate the process for drafting a solicitation. That approach
assists in ensuring that the need for the goods or services is identified and that the required approvals have
been obtained to begin development of a solicitation. However, the Procurement and Contracting Services
unit started drafting the solicitation in March 2014, and the Department did not submit an approved
purchase requisition for the solicitation until June 2014.
The Procurement and Contracting Services unit did not complete the development of appendices
referenced in the solicitation prior to publicly posting the solicitation.
During the procurement process, vendors requested copies of six appendices that were referenced, but not
included, in the solicitation. Those six appendices contained information related to hospital guidelines, a
required form to describe a vendor’s hospital budget, information on Terrell State Hospital facilities,
performance indicators that would be used to monitor vendor performance, a list of active buildings at
Terrell State Hospital, and accessibility requirements for certain information resources. The Commission’s
Procurement and Contracting Services unit asserted that, due to the hurried approach taken to complete the
solicitation and publicly post it, those appendices were not completed and posted with the solicitation.
The Commission’s proposal evaluation process did not provide complete and reliable information to
demonstrate that the vendor the Commission selected provided the best value to the State.
The Commission collected, recorded, and calculated evaluation scores for the vendor proposal in an
inconsistent manner. That resulted in an unreliable and inaccurate overall evaluation score for the vendor’s
proposal. In addition, the Commission did not verify the accuracy and completeness of the vendor’s
corporate background, qualifications, and experience. Instead, the Commission relied solely on information
that the vendor described in its proposal.
The Commission did not document the executive commissioner’s approval to tentatively award the
contract, as required.
The Commission did not document the executive commissioner’s approval to tentatively award the contract,
as required. The Commission’s deputy executive commissioner for procurement and contracting services
stated that, after informing the executive commissioner that there were no impediments to making a
tentative award to the one vendor proposal determined to be responsive, the executive commissioner gave a
verbal approval to make the tentative contract award to that vendor, GEO Care, LLC. However, the
Commission’s procurement requirements specify that a recommendation for a tentative award must be
documented and submitted to the executive commissioner for review and written approval. The
recommendation documentation typically shows the best value criteria and other factors that support the
tentative award decision. The Procurement and Contracting Services unit drafted a memorandum for the
executive commissioner’s review and approval, but the deputy executive commissioner for procurement and
contracting services did not send that document to the executive commissioner.
Based on the deputy executive commissioner for procurement and contracting services’ assertion of when
the executive commissioner gave verbal approval of the tentative contract award, that verbal approval
occurred prior to the completion of the proposal evaluation process. Specifically:


The deputy executive commissioner for procurement and contracting services stated that (1) the
executive commissioner gave a verbal approval on October 15, 2014, and (2) the verbal approval
included instructions to make a tentative award announcement by October 17, 2014.

Members of the Legislative Audit Committee
March 25, 2015
Page 4


The Commission’s Procurement and Contracting Services unit asserted that the tabulation of the
evaluation scores was completed on October 16, 2014.



The Commission’s Procurement and Contracting Services unit drafted a memorandum to tentatively
award the contract on October 17, 2014.



The Commission publicly announced the tentative contract award on October 20, 2014.

On September 11, 2014, GEO Care, LLC changed its legal business name with the Office of the Secretary
of State to Correct Care, LLC. On February 20, 2015, the Office of the Secretary of State reported a tax
forfeiture for Correct Care, LLC. As of February 26, 2015, the Office of the Secretary of State’s records
showed that Correct Care, LLC’s status was “forfeited existence.” According to the Office of the
Comptroller of Public Accounts, a “forfeited” status indicates that the vendor forfeited the right to transact
business in Texas.
During this audit, the Commission postponed contract negotiations. As of February 26, 2015, the
Commission asserted that contract negotiations had been placed on an indefinite hold.
The attachment to this letter contains additional details on issues auditors identified in the Commission’s
and Department’s planning and procurement for Terrell State Hospital operations, recommendations, and
management’s responses.
Sincerely,

John Keel, CPA
State Auditor
Attachment
cc:

The Honorable Greg Abbott, Governor
Dr. Kyle Janek, Executive Commissioner, Health and Human Services Commission
Mr. Kirk Cole, Interim Commissioner, Department of State Health Services

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Attachment
Section 1

Audit Results and Recommendations
While the Health and Human Services Commission (Commission) and the
Department of State Health Services (Department) complied with certain
contract planning and procurement requirements in the solicitation for
managing selected operations at Terrell State Hospital, auditors identified
significant deficiencies related to other planning and procurement processes
that are designed to assist with ensuring that the State receives best value in
accordance with applicable state procurement laws and rules.
Table 1 details the strengths and weaknesses that auditors identified in the
Commission’s contract planning processes, as well as recommendations to
address the weaknesses.
Table 1

Contract Planning Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
Process Strengths
1

The Commission had a contracting manual for its contract planning and procurement processes.

2

The Commission’s procurement management and staff responsible for managing the contract planning and
procurement processes for the solicitation had the required certifications and training.

3

The Commission obtained delegated purchasing authority from the State’s Contract Advisory Team as required.

4

The Commission established historically underutilized business (HUB) rules that incorporated the HUB rules
adopted by the Office of the Comptroller of Public Accounts, as required.

5

The Commission submitted the solicitation to the State’s Contract Advisory Team prior to public posting of the
solicitation, as required. The Commission requested and received an expedited review of the solicitation.

6

The Commission determined that subcontracting opportunities were probable from the solicitation and ensured
that the solicitation required vendor proposals to include HUB subcontracting plans, as required.

7

The Commission’s standard general contract provisions (included with the solicitation documents and reviewed
by the State’s Contract Advisory Team) allowed the Department to recoup costs for overpayment. Additionally,
in the event the vendor sought to terminate the contract, the vendor was required to (1) provide the Department
with at least 90 calendar days prior written notice and (2) submit a transition plan.

8

The solicitation required the vendor to provide (1) a 120-day transition plan for transferring state-operated
services to private operation and (2) a transition plan, upon termination of the contract by either party, that
would allow the continuation of services with minimal interruption or disruption.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 1

Contract Planning Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
Process Weaknesses
1

The Commission’s executive commissioner directed the Commission’s deputy
executive commissioner for procurement and contracting services to initiate a
solicitation for outsourcing Terrell State Hospital operations. However, when
the solicitation was initiated, the Commission and the Department did not
comply with the Commission’s policy to conduct a needs assessment and costbenefit analysis to support outsourcing those operations.
The Commission’s procurement requirements specify that health and human
service agencies should identify their needs and determine budgetary, legal, or
other constraints that may limit the ability to procure the service. The
Commission’s Procurement and Contract Services unit reported that it decided
to use a revised version of the solicitation developed for a prior solicitation.
However, planning for that prior solicitation did not include any detailed
services or cost analyses related to Terrell State Hospital operations.

Recommendations
The Commission should
identify and evaluate the
services at Terrell State
Hospital that it wants to
outsource and determine the
operating costs associated
with those services.

In addition, during contract negotiations, the Department formally requested
guidance and approval from the Commission’s executive commissioner regarding
the terms of contract negotiations with the vendor to which it made the
tentative contract award. The request included several discussion topics
involving the type of contract, whether the contract should involve construction
projects, the term of the contract, the payment methodology, and the contract
amount. Those discussion topics should have been identified and resolved
during the contract planning process.
2

The Commission did not establish a reasonable cost estimate for the value of
the contract. The Commission did not have documentation to support how it
determined the $30.0 million contract cost estimate it reported to the State’s
Contract Advisory Team. Auditors determined that cost estimate was not
reasonable because Terrell State Hospital (1) had annual operating budgets of
approximately $55.7 million in fiscal year 2014 and $59.8 million in fiscal year
2015 and (2) the Commission was seeking a contract with a term of five years
and five two-year renewal periods.

The Commission should
maintain documentation that
shows how it calculates the
estimated contract cost that
it reports to the State’s
Contract Advisory Team.

3

As a result of not reasonably estimating a contract value, the Commission may
not have complied with Texas Government Code, Section 531.018, which
requires the Office of the Attorney General to review procurement processes
involving health- and medical-related contracts that have a value of $250
million or more.

The Commission should
determine whether
procurements meet the
statutory requirements for
initiating a review by the
Office of the Attorney
General and document the
results of those
determinations.

In addition, when considering Terrell State Hospital’s annual operating budgets
for fiscal years 2014 and 2015 and a five-year initial contract term, the
estimated value for the contract could exceed $250 million.
4

The Commission did not require price to be a factor in determining whether a
vendor’s proposal offers the State best value, as required. The Commission and
the Department staff erroneously removed price from the statement of work
and as a best value requirement during the development of the solicitation. As
a result, the solicitation specified the best value criteria as follows (in order of
precedence):

 “Business Solution Meets or Exceeds [solicitation] requirements.”
 “Experience Performing Services Described in [solicitation].”
 “Quality and Reliability of Respondent’s Services.”
Title 1, Texas Administrative Code, Section 391.131(b), requires health and
human services agencies to ensure that every procurement includes price as a
factor unless the purchasing entity (1) documents the reasons for disregarding
price and (2) for a procurement that is estimated to exceed $100,000 in value,
obtains the approval of the Commission. However, the Commission and the
Department did not document those reasons or obtain the required approval.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 2

The Commission should
establish a process to assist
with ensuring that
solicitations include the best
value criteria that statute and
its rules require.

Contract Planning Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
5

The Commission’s Procurement and Contracting Services unit did not provide an
explanation for not implementing certain recommendations that the State’s
Contract Advisory Team made after it reviewed the solicitation and standard
general contract provisions. The Procurement and Contracting Services unit did
not implement 11 (44 percent) of the 25 recommendations that the Contract
Advisory Team made. Those 11 recommendations were related to specification
of the contract term, limitations on the State’s funding and liability with regard
to contract termination, clarification regarding allowing a vendor to build a
facility for the Terrell State Hospital, specification of required qualifications
and certifications for certain vendor personnel, record retention requirements,
and requirements for maintaining the confidentiality and security of electronic
patient records.

The Commission should not
post a solicitation until it
verifies that it has fully
complied with the
requirements for obtaining a
Contract Advisory Team
review.

Texas Government Code, Section 2262.101(d), specifies that a state entity shall
comply with a recommendation made by the Contract Advisory Team or submit
a written explanation regarding why the recommendation is not applicable.
6

The Commission’s Procurement and Contracting Services unit drafted the
solicitation before the Department submitted an approved purchase requisition
for the solicitation. The Procurement and Contracting Services unit started
drafting the solicitation in March 2014 upon the request of the Commission’s
executive commissioner. However, the Department did not submit an approved
purchase requisition for the solicitation until June 3, 2014. The Commission’s
procurement policies and procedures require the submission of an approved
purchase requisition, along with other documents related to needs assessment
and cost-benefit analysis, to the Procurement and Contracting Services unit to
initiate the process for drafting a solicitation. That approach assists in ensuring
that the need for the goods or services is identified and that the required
approvals have been obtained to begin development of a solicitation.

The Commission should
ensure that all required
documents are approved and
submitted prior to the
development of a solicitation.

7

The Commission’s Procurement and Contracting Services unit did not complete
the development of appendices referenced in the solicitation prior to publicly
posting the solicitation. During the procurement process, vendors requested
copies of six appendices that were referenced, but not included, in the
solicitation. Those six appendices contained information related to hospital
guidelines, a required form to describe a vendor’s hospital budget, information
on Terrell State Hospital facilities, performance indicators that would be used
to monitor vendor performance, a list of active buildings at Terrell State
Hospital, and accessibility requirements for certain information resources. The
Commission’s Procurement and Contracting Services unit asserted that, due to
the hurried approach taken to complete the solicitation and publicly post it,
those appendices were not completed and posted with the solicitation.

The Commission should verify
that it has completed and
included in solicitations all
referenced appendices prior
to publicly posting
solicitations.

Table 2 details the strengths and weaknesses that auditors identified in the
Commission’s contract procurement processes, as well as recommendations to
address the weaknesses.
Table 2

Contract Procurement Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
Process Strengths
1

The Commission publically advertised the solicitation for outsourcing select Terrell State Hospital operations, as
required.

2

The Commission verified that the vendor proposals it received met the submission requirements of the
solicitation. It received two proposals, only one of which it deemed responsive. It determined that the other
proposal was nonresponsive because that proposal did not include several required documents, such as the
required HUB subcontracting plan, a compliance plan, staff job descriptions, and a cost proposal.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 3

Contract Procurement Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
3

Ten Department staff with expertise in clinical services, patient protection, facility management, financial
operations, hospital administration, and human resources reviewed the responsive proposal.

4

Prior to evaluating the responsive proposal, the 10 Department staff who reviewed the responsive proposal
completed and signed nondisclosure agreements that included requirements for disclosing conflicts of interest.
None of the members of the evaluation team reported conflicts of interests.

5

The solicitation required vendors to describe how they planned to maintain the same level of care.

Process Weaknesses
1

The Commission provided a response to a vendor question that was not consistent
with the scope of work defined by the solicitation. A vendor submitted a question
to the Commission asking who would be responsible for the repairs, upgrades, and
replacements of known buildings, equipment, and other infrastructure items. The
Commission responded by stating the requirements of the solicitation, but it also
included in the response a statement specifying that the vendor would be
responsible for only the first $25,000 of any modification to state-owned property
or equipment. However, the solicitation specified that the vendor would be
responsible for all maintenance and deferred maintenance of facilities and
expenses. A November 2014 consultant’s report, which was part of a mandate by
Rider 83, page II-76, the General Appropriations Act (83nd Legislature), specified
that the 10-year cost of deferred maintenance and ongoing facility maintenance
for Terrell State Hospital would be approximately $63.9 million.

Recommendations
The Commission should
ensure that responses to
vendor questions are
consistent with the
requirements specified by
its solicitations.

In addition, another vendor question was posted that asked a similar question
concerning facility maintenance costs. For that question, the vendor asked the
Commission to modify the requirement concerning the vendor’s responsibility of
facility maintenance costs to only the first $25,000 of any modification to stateowned property or equipment; however, for that question, the Commission
responded that “Consideration was contemplated but no modification will be
possible. This is the standard requirement for all [state hospital] facilities.”
2

The evaluation document that the evaluation team used to evaluate the vendor
proposal erroneously included a requirement to review the vendor’s proposal
response for achieving a 10 percent cost savings. However, the 10 percent costsavings requirement was not part of the solicitation requirements. That
requirement was part of the 2012 solicitation for privatizing state hospitals as
directed by Rider 63, page II-73, the General Appropriations Act (82nd Legislature).
The Commission’s Procurement and Contracting Services unit reported that it
revised the evaluation document from the 2012 solicitation to evaluate the
solicitation for outsourcing Terrell State Hospital, but it mistakenly forgot to
remove the cost-savings requirement. The evaluation team scored the cost-savings
criterion, assigning scores ranging from a low of four to a high of eight. Those
scores were used in determining the overall score for the vendor proposal.

Before it uses an
evaluation document to
assess vendor proposals,
the Commission should
verify that the evaluation
document includes only
the requirements in the
associated solicitation.

3

The Commission did not correctly compile and accurately calculate the overall
evaluation score for the proposal submitted by the vendor to which it tentatively
awarded a contract. Seven of the ten members of the evaluation team evaluated
certain solicitation requirements more than once; in some instances, they gave
significantly different scores each time. In addition, the Commission omitted
certain evaluators’ scores when it calculated the overall evaluation score for best
value. The Commission asserted that the errors in scoring occurred because it
processed the evaluation scores in a hasty manner to meet the procurement
deadline to execute a contract by January 1, 2015.

The Commission should:

 Ensure that each

member of an
evaluation team
provides a single
evaluation score for
each solicitation
requirement that a
member reviews.

 Accurately calculate

overall evaluation
scores according to the
evaluation scores
provided by all
members of an
evaluation team.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 4

Contract Procurement Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
4

The Commission did not hold a meeting to allow members of the evaluation team
to discuss significant differences in their evaluation scores, as its procedures
permitted. The Commission asserted that the intent of its evaluation process was
to determine a field of competition for a solicitation. The Commission also
asserted that it waived that meeting because it had only one responsive proposal
and holding a meeting would not have added value to the evaluation process.

The Commission should
allow members of the
evaluation team to meet
and discuss variances in
evaluation scores to assist
with ensuring that they all
have the same
understanding of the
solicitation requirements
and access to information
available for evaluating
proposals.

5

The Commission did not verify the corporate background, qualifications, and
experience of the vendor that submitted the responsive proposal. The Commission
relied only on the information that the vendor reported in its proposal. The
solicitation permitted the Commission to confirm the capabilities a vendor
described through oral presentations, site visits, demonstrations, and references.

The Commission should
ensure that its evaluation
of vendor proposals
requires it to verify the
corporate background,
qualifications, and
experience that vendors
report.

6

The Commission did not establish a minimum qualifying evaluation score for
proposals. The Commission asserted that its rules allow it to begin immediate
contract negotiations with solicitations that receive only one proposal. However,
that approach exposes the Commission to the increased risk of awarding and
executing a contract with a vendor that may not meet the minimum qualifications.

The Commission should
establish a standard
minimum qualifying
evaluation score for health
and human services
solicitations to ensure that
a vendor proposal meets
the minimum
qualifications and
expectations for a
solicitation.

7

The Commission’s Procurement and Contracting Services unit did not document the
executive commissioner’s approval to tentatively award the contract, as required.

The Commission should
document approvals to
tentatively award
contracts and include in
that documentation the
best value factors that
support the tentative
contract award decision.

The Commission’s deputy executive commissioner for procurement and contracting
services asserted that, on October 15, 2014, after the executive commissioner was
informed that there were no impediments to making a tentative award to the only
vendor proposal determined to be responsive, the executive commissioner gave
verbal approval to tentatively award the contract. On that same date, the
Procurement and Contracting Services unit collected the evaluation scores from the
evaluation team. The Procurement and Contracting Services unit tabulated the
final evaluation scores on October 16, 2014.
The Procurement and Contracting Services unit drafted a memorandum to obtain
written approval from the executive commissioner on October 17, 2014. However,
that memorandum was not finalized and it was not sent to the executive
commissioner. That memorandum would typically list the best value factors and
other information that were considered to support the tentative award decision.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 5

Contract Procurement Process Strengths and Weaknesses in the
Solicitation for Managing Selected Operations at Terrell State Hospital
8

The Commission did not ensure that all members of the contract negotiation team
signed nondisclosure agreements before participating in negotiations with the
vendor to which it tentatively awarded a contract.
Four (36 percent) of the 11 team members did not sign nondisclosure agreements
prior to the start of negotiations. Specifically:

 Two team members, who were Department employees, signed nondisclosure
agreements during this audit.

The Commission should
consistently obtain signed
nondisclosure agreements
from management and
staff prior to their
participation in contract
negotiations.

 One team member signed a nondisclosure agreement approximately one week
after attending the vendor presentation.

 One member, who was a Commission employee, never signed a nondisclosure
agreement and resigned prior to the start of this audit.

None of the members of the contract negotiating team who signed a non-disclosure
agreement reported a conflict of interest.
9

The Commission’s Procurement and Contracting Services unit did not document its
notification to the vendor whose proposal was rejected. While the Procurement
and Contracting Services unit screened the two vendor proposals that it received
and determined that one vendor proposal did not meet the solicitation
requirements, the Procurement and Contracting Services unit did not notify the
vendor in writing of the reasons its proposal was rejected. The Commission’s
procurement policies require that it notify, in writing and in a timely fashion, each
vendor that does not meet the screening requirements. The written notification
must specify why the offer has been eliminated from further consideration and
include a statement of the Commission’s willingness to provide a debriefing.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 6

The Commission should
ensure that vendors whose
proposals are rejected
during the screening
process are notified in the
manner prescribed by its
procurement policies
before it begins its
evaluation process.

Section 2

Management’s Responses

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 7

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 8

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 9

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 10

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 11

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 12

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 13

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 14

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 15

Section 3

Procurement Time Line
Table 3 lists important dates related to the Health and Human Services
Commission’s (Commission) and the Department of State Health Services’
(Department) procurement for Terrell Hospital operations.
Table 3

Time Line of Important Dates
Related to the Procurement for Terrell State Hospital Operations
Date

Event

March 5, 2014

The Commission’s Procurement and Contracting Services unit started developing the solicitation.

March 24, 2014

The Commission’s Procurement and Contracting Services unit completed an initial draft of the
solicitation and sent it to the Department for review and approval.

May 27, 2014

The Department completed its review of the solicitation and submitted a revised solicitation to the
Commission’s Procurement and Contracting Services unit.

May 30, 2014

The Commission’s chief of staff’s office submitted suggested revisions to the solicitation.
The Commission’s Procurement and Contracting Services unit completed the final version of the
solicitation.

June 3, 2014

The Department created a purchase requisition for the solicitation. The Commission’s Procurement
and Contracting Services unit submitted the final solicitation to the State’s Contract Advisory Team for
review.

June 9, 2014

The State’s Contract Advisory Team completed its review of the solicitation and provided the
Commission’s Procurement and Contract Services unit with recommended revisions.
The Commission’s Procurement and Contracting Services unit posted the solicitation on the Electronic
Business Daily Web site.

June 24, 2014

The Commission’s Procurement and Contracting Services unit conducted a site visit of Terrell State
Hospital with four vendors.

June 30, 2014

The Commission’s Procurement and Contracting Services unit held a vendor conference in Austin,
Texas.
The Commission posted the first addendum to the solicitation and revised the dates of the original
procurement schedule. The anticipated contract start date changed from September 15, 2014, to
January 1, 2015.
The Commission posted the second addendum to the solicitation and provided vendors with a copy of
the vendor conference presentation and the vendor sign-in sheet.

July 7, 2014

Vendor questions were due to the Commission’s Procurement and Contracting Services unit.

July 14, 2014

The Commission’s Procurement and Contracting Services unit released the schedule for posting the
Department’s responses to vendor questions.

July 28, 2014

The Commission posted the third addendum to the solicitation and changed the procurement schedule.

August 4, 2014

The Commission posted the fourth addendum to the solicitation and published all vendor questions and
answers.

August 12, 2014

The Commission posted the fifth addendum to the solicitation and published revised answers to
selected questions that were originally posted in the fourth addendum.

August 19, 2014

The time period for vendors to submit and withdraw proposals to the solicitation closed. Two vendors
submitted proposals.

August 20, 2014

The Commission determined that one vendor’s proposal was nonresponsive because that vendor’s
proposal was incomplete.

September 11, 2014

GEO Care, LLC changed its legal business name with the Office of the Secretary of State to Correct
Care, LLC.
Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 16

Time Line of Important Dates
Related to the Procurement for Terrell State Hospital Operations
Date

Event

September 19, 2014

The Department held a kick-off meeting for members of the evaluation team.

October 15, 2014

The Commission’s deputy executive commissioner for procurement and contracting services stated
that after the Commission’s executive commissioner was informed that there were no impediments to
the tentative award to the single vendor proposal received, the executive commissioner gave verbal
approval to tentatively award the contract.
The Commission’s Procurement and Contracting Services unit obtained all completed evaluations for
tabulation.

October 16, 2014

The Commission’s Procurement and Contracting Services unit completed the tabulation of the
evaluation scores.

October 17, 2014

The Commission’s Procurement and Contracting Services unit drafted a recommendation to tentatively
award the contract to GEO Care, LLC. However, the deputy executive commissioner for procurement
and contracting services did not send that recommendation to the executive commissioner for review
and approval.

October 20, 2014

The Commission announced a tentative contract award to GEO Care, LLC.

November 7, 2014

Selected Commission and Department management and staff met to discuss contract negotiations.

January 1, 2015

The targeted commencement date for the contract was January 1, 2015.

January 13, 2015

The Department submitted a memorandum to the Procurement and Contracting Services unit
requesting approval to discuss certain negotiation terms and conditions. However, that memorandum
was not provided to the Commission’s executive commissioner.

February 11, 2015

The Commission’s Procurement and Contracting Services unit submitted a request to meet with the
executive commissioner to discuss the tentative contract award to GEO Care, LLC.

February 20, 2015

The Office of the Secretary of State reported a tax forfeiture for Correct Care, LLC.

February 26, 2015

As of February 26, 2015, the Commission and the Department had not executed a contract.

a

a

As of February 26, 2015, the Office of the Secretary of State’s records showed that Correct Care, LLC’s status was “forfeited
existence.”
Source: Auditor review of Commission and Department documentation.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 17

Section 4

Objective, Scope, and Methodology
Objective
The objective of this audit was to determine whether health and human
services agencies have administered certain contract management functions
for selected contracts in accordance with applicable requirements.
Scope
The scope of the audit covered the contract planning and procurement
processes related to the tentative contract award for Terrell State Hospital
operations.
Methodology
The audit methodology consisted of collecting and reviewing procurement
documentation; conducting interviews with the Health and Humans Services
Commission (Commission) and the Department of State Health Services
(Department) staff; reviewing statutes, rules, the Office of the Comptroller of
Public Accounts requirements, and Commission and Department policies and
procedures; and performing selected tests and other procedures.
Information collected and reviewed included the following:


Terrell State Hospital request for proposals, the 2012 state hospital
privatization request for proposals, and associated appendices and
addendums.



Commission policies and procedures, manuals, and applicable rules and
regulations.



Commission solicitation and bid documentation, evaluation criteria and
documentation, and related supporting documentation.



Commission procurement files, including planning documentation,
approvals, and other supporting documentation.



Commission personnel training and certification records and
nondisclosure and conflict of interest forms.



Commission and Department internal audit reports.



Prior State Auditor’s Office reports.



Emails and other documentation that supported information that
Commission and Department employees provided during interviews.
Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 18

Procedures and tests conducted included the following:


Interviewed employees at the Commission and the Department.



Tested whether the Commission complied with applicable requirements
for planning the solicitation of Terrell State Hospital operations.



Reviewed applicable conflict of interest and nondisclosure forms.



Tested whether the Commission properly documented bid evaluation
criteria and evaluation scores.



Tested the Department’s scoring of the vendor proposal to determine
whether all evaluators completed the same scoring matrix and ensured
mathematical accuracy.



Tested criteria the Commission used to evaluate vendor proposals to
determine whether it followed applicable requirements in the Texas
Government Code.

Criteria used included the following:


Texas Government Code, Chapters 322, 531, 572, 2151, 2155, 2156,
2157, 2161, 2252, 2254, 2261, 2262, and 2263



Title 34, Texas Administrative Code, Chapter 20.



Title 1, Texas Administrative Code, Chapter 391.



State of Texas Contract Management Guide (Version 1.12, March 2014).



State of Texas Procurement Manual (2012).



Health and Human Services Contracting Processes and Procedures
Manual (March 2013).



Health and Human Services Procurement Manual (2010).

Project Information
Audit fieldwork was conducted from January 2015 through February 2015.
We conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 19

The following members of the State Auditor’s staff performed the audit:


Willie J. Hicks, MBA, CGAP (Project Manager)



Kelsey Arnold, MEd (Assistant Project Manager)



Scott Armstrong, CGAP



Pamela A. Bradly, CPA



Paige Dahl



Darcy Hampton, MAcy



Eric Ladejo, MPA



Kathy-Ann Moe, MBA



Valentine Reddic, MBA



Mike Apperley, CPA (Quality Control Reviewer)



John Young, MPAff (Audit Manager)

Attachment
An Audit Report on Procurement for Terrell State Hospital Operations
at the Health and Human Services Commission
and the Department of State Health Services
SAO Report No. 15-030
March 2015
Page 20